10/4/2023: Market Turbulence in Venture Capital

Pitchbook just published their Q3 2023 quantitative perspectives on VC markets. The tl;dr of the report is that we are in a deep deep bear market right now. The IPO market is still largely frozen and Instacart, Klaviyo and ARM’s IPO performance is not exactly reassuring. According to the report, 2023 is on pace to be the slowest year for IPO exit value since 2009.

The dearth of IPOs has a strong downstream effect for venture fundraising and 2023 is set to set a 6-year low as shown above. There’re a lot of interesting charts in this report but they all point to the difficult startup fundraising environment in the foreseeable future. Namely, the condition will not get better until the liquidity of VC improves through IPOs or M&As. As shown below, the net cash flow from VC is the most negative in 2022 since 1998. LPs need to get their distributions in order to invest their money back into venture capital. But the flywheel is basically stuck at the moment. If you are an investor with dry powder, it’s actually a good time to become more active. If you are a founder, make sure you make your business as capital efficient as possible. The era of easy money is over and we need to learn how to survive in this new environment.